Contribution Margin Income Statement, Service Company

a$.$ Traditional income statement:

Sales

Cost of goods sold

Gross margin

Selling and administrative costs

Operating profit

b$.$ Contribution margin income statement:

Sales

Variable costs:

Cost of goods sold

Selling and administration

Total variable costs

Contribution margin

Fixed costs:

Cost of goods sold

Selling and administration

Total fixed costs

Operating profit

Correct

Correct

Incorrect

Incorrect

Incorrect

Incorrect

Incorrect

Incorrect

Incorrect

Incorrect

Incorrect

Incorrect

Incorrect

You are not required to answer this question for the homework, but you should know the

answer $($see below$).$

The traditional income statement is designed for external reporting purposes and presents costs by

functional area, such as cost of goods sold and selling and administrative costs. The traditional

income statement does not separate costs into fixed and variable components.

The contribution margin income statement presents the fixed and variable components of all cost

information. This allows management to predict how costs will behave with changes in activity,

which ultimately leads to better planning and decision$-$making.

filling in the dollar amounts for $f$ and $v.$

b$.$ What would the company's estimated costs be if it used $70,000$ machine

hours next month?

c$.$ What would the company's estimated costs be if it used $12,000$ machine

hours next month?

Contribution Margin Income Statement, Service Company. Last month

Nakahara Cuisine, Inc. had total sales of $$600,000.$ Food preparation and

service costs totaled $$270,000(20$ percent fixed, $80$ percent variable$).$ Selling

and administrative costs totaled $$90,000(70$ percent fixed, $30$ percent

variable$).$

Required:

a$.$ Prepare a traditional income statement for the company.

b$.$ Prepare a contribution margin income statement for the company.

c$.$ Why do companies use the contribution margin income statement format?

Regression Analysis Using Excel $($Appendix$).$ Silverado Company produces

computer tablets. Management wants to estimate the cost of production

equipment used to produce the tablets. The company reported the following

monthly cost data related to production equipment: